Small Mid Cap Highlights - UOB Kay Hian 2019-11-27: More Privatisation Offers Could Raise Interest In Value Stocks

Small Mid Cap Highlights - UOB Kay Hian Research | SGinvestors.io FU YU CORPORATION LTD (SGX:F13) VALUETRONICS HOLDINGS LIMITED (SGX:BN2) OVERSEAS EDUCATION LIMITED (SGX:RQ1)

Small Mid Cap Highlights - More Privatisation Offers Could Raise Interest In Value Stocks




WHAT’S NEW


Number of privatisations has increased significantly in 2019.

  • We believe this is largely due to:
    1. lacklustre valuation;
    2. lack of funding requirements; and
    3. backing from new partners.
  • These have led to major shareholders privatising their companies from SGX. The highest premium offered in 2019 was 195% vs the last closing price.
  • See attached PDF report for the summary of past M&A Transactions in Singapore For 2019.

Exit offer for Citic Envirotech at an attractive premium of 68.5% over the 3M VWAP.



STOCK IMPACT


Deep-value small-cap stocks are worth a relook.

  • We believe deep-value names with high margin of safety have room for further re-rating, especially in the current uncertain macroeconomic environment which faces risks of a trade war and slower growth. Companies with high cash reserves and dividend yields can weather any downturn better than peers.

Deep-value names include Fu Yu, Valuetronics and Overseas Education.

  • Their valuations remain attractive and investors could receive generous dividend yield while waiting for any catalysts, including takeovers, cost rationalisation and huge order wins:
    • FU YU CORPORATION (SGX:F13) trades at 4.3x 2019F EV/EBITDA and 6.3x 2019F ex-cash PE. Its net cash has increased to S$84.6m as of 3Q19, or 49% of its market cap. FU YU CORPORATION is diversifying to a more stable business model and is optimising as well as turning around its loss-making operations.
    • VALUETRONICS (SGX:BN2) trades at 3.4x 2019F EV/EBITDA and 5.2x 2019F ex-cash PE. Its net cash increased to HK$1,028m (S$174.8m) as of 2QFY20, or 52% of its market cap. VALUETRONICS continues to see good demand for connectivity modules used in the automobile industry
    • OVERSEAS EDUCATION LIMITED (SGX:RQ1) offers an attractive 8.9% dividend yield for 2019F. We expect net 11.2% in 2019 and 6.4% in 2020.


EARNINGS REVISION/RISK

  • We made no changes to our EPS forecasts.
  • Risks include forex, lower-than expected orders, and margin pressure from rising costs.


VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Additional customers and higher cost savings.
  • Higher-than-expected dividends.
  • Takeover offer.





John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-11-27
SGX Stock Analyst Report BUY MAINTAIN BUY 0.285 SAME 0.285
BUY MAINTAIN BUY 0.87 SAME 0.87
BUY MAINTAIN BUY 0.460 SAME 0.460



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......